The future's digital
You may have heard confusing stories about having to submit four tax returns a year. This is not going to happen immediately, but there are changes ahead which will affect how businesses report their profits or losses and pay tax.
The Government wants to make tax digital, and to do away with the annual tax return. Its big idea is that businesses will be required to submit their income and expense figures electronically to HMRC at least four times a year, using some magic software which has yet to be invented. Those raw figures will be used to calculate a rough amount of tax due, which will be payable at least four times a year.
In fact, total sales income less expenses doesn't equal taxable profit, as adjustments are needed for items which aren't tax deductible (e.g. entertaining), as well as for debtors, creditors, and allowances. Thus, in practice, the raw figures can't be used as the basis for an accurate tax liability, however smart the software is. Some accounting adjustments will be required, which we will help you with.
As a self-employed individual, you already make two tax payments a year on 31 January and 31 July. A similar payment-on-account system may spread the tax due over four payment dates, which may not be a bad thing. We will have to see the detailed proposals.
Small companies, on the other hand, pay Corporation Tax in one payment, nine months after the end of the accounting period. Paying tax by instalments will be a big change for those companies.
There will be a lot of consultation by the Government and HMRC before these changes are introduced, but you can be certain things will change. HMRC would like taxpayers to be filing quarterly reports of their income and expenses from April 2018. Let us know how you feel about more frequent tax payments and we will pass your views on to HMRC.
